HP- Compaq deal given green light by ISS

Hewlett-Packard's plan to take over Compaq Computer received a huge boost late on Tuesday evening when shareholder advisory firm, Institutional Shareholder Services, recommended that the deal go ahead.

ISS' recommendation is important because it advises institutional investors that hold more than 23 per cent of HP's stock.

Although its recommendation is not binding, at least one investor, Barclays Global Investors, one of HP's biggest shareholders with a three per cent holding, had handed voting control to ISS. This decision was made to avoid a conflict of interest, since one of the Barclays investment firm's executives, Patricia Dunn, sits on the HP board.

ISS was enthusiastically in favour of the takeover and cited several reasons. They included that the cost synergies promised by HP were achievable and that customers supported the deal. Patrick McGurn, ISS vice president, said its analysts spent many hours with HP executives examining their plan. He said ISS: "believes in the long run it (the takeover) will maximise shareholder value."

While many analysts said that if ISS recommended against the takeover, the deal was dead. However it is still not certain it will go ahead.

Those against the deal, led by Walter Hewlett, son of the founder, control around 20 percent of the shares.

Daniel Kunstler, an analyst with JP Morgan, said he was not surprised that ISS came out in favour of the deal. He was surprised though at how unequivocally it was in favour. "They didn't caveat you to death," he said.